Retrocession

Reinsurance of reinsurers, passing assumed risk further down the chain.

Overview

Retro lets a reinsurer balance portfolios, cap peak exposures, and free capital, creating a chain from policyholder through insurer, reinsurer, and retrocessionaire, with capital markets at the far end through insurance linked securities. Long chains create counterparty risk spirals, where the same risk circles among a few players, as in the London market excess of loss spirals of the 1980s that multiplied losses far beyond the original events. Retro protection matters most after catastrophes, when recoveries cascade up the chain, and retrocessionaires buy their own cover in turn. Credit assessment down the chain, collateral posted, and arbitrations over settlement obligations keep the market functioning, and renewals cluster around January alongside the major treaty renewals.